tailieunhanh - Lecture Financial institutions, instruments and markets (6/e): Chapter 17 - Christopher Viney

Chapter 17 - Foreign exchange: risk identification and management. In this chapter, students will be able to: Recognise FX transaction, translation, operational and economic risk, formulate an FX policy document, outline methods to identify a company’s FX exposures, describe the implementation of market-based hedging techniques, explain internal non-market-based techniques for managing FX risk. | Chapter 17 Foreign Exchange: Risk Identification and Management 17- Learning Objectives Recognise FX transaction, translation, operational and economic risk Formulate an FX policy document Outline methods to identify a company’s FX exposures Describe the implementation of market-based hedging techniques Explain internal non-market-based techniques for managing FX risk 17- Chapter Organisation FX Risk Policy Formation Measuring Transaction Exposure Risk Management: Market-based Hedging Techniques Risk Management: Internal Hedging Techniques Summary 17- FX Risk Policy Formation Foreign exchange risk exposures can be classified in terms of their impact on a firm’s cash flows, balance sheet, competitive position and value Transaction exposure Translation or accounting exposure Operational exposure Economic exposure 17- FX Risk Policy Formation (cont.) Transaction exposure The risk that future foreign currency denominated cash flows will vary on account of exchange rate movements . a contract to import goods from the US denominated in USD 17- FX Risk Policy Formation (cont.) Translation or accounting exposure The risk that conversion and consolidation of foreign currency assets or liabilities will impact adversely on the balance sheet . a firm accumulates assets and liabilities overseas and at a future date translates their value onto its consolidated balance sheet 17- FX Risk Policy Formation (cont.) Operational exposure The risk that day-to-day operating revenues and expenses will be affected by FX movements . foreign subsidiary operating expenses paid in the currency of the foreign country but sourced in another country such as the parent company 17- FX Risk Policy Formation (cont.) Economic exposure The effect of exchange rate movements on the ongoing business operations of a firm (. the net present value of its future cash flows) It includes both transaction exposures and . | Chapter 17 Foreign Exchange: Risk Identification and Management 17- Learning Objectives Recognise FX transaction, translation, operational and economic risk Formulate an FX policy document Outline methods to identify a company’s FX exposures Describe the implementation of market-based hedging techniques Explain internal non-market-based techniques for managing FX risk 17- Chapter Organisation FX Risk Policy Formation Measuring Transaction Exposure Risk Management: Market-based Hedging Techniques Risk Management: Internal Hedging Techniques Summary 17- FX Risk Policy Formation Foreign exchange risk exposures can be classified in terms of their impact on a firm’s cash flows, balance sheet, competitive position and value Transaction exposure Translation or accounting exposure Operational exposure Economic exposure 17- FX Risk Policy Formation (cont.) Transaction exposure The risk that future foreign currency denominated cash flows will .